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Super Bourse: the DIFX is on its way to achieving its mission by joining forces with Nasdaq ­— but liquidity on the exchange remains a problem.

If you can't beat them, join them," Albert Momdjian tells Arabian Business. Momdjian, the CEO of the Dubai International Financial Centre (DIFC) branch of Calyon, Crédit Agricole's corporate and investment bank, is not one to use many clichés, but in describing the recent deal that tied together four major stock exchanges: Nasdaq, the Swedish OMX, the London Stock Exchange (LSE) and Borse Dubai, it seems appropriate. The heated bidding for OMX and the battle between Dubai and London to offer financial services to emerging markets has left a lot of bodies behind on the field, hence the truce.

Momdjian says that "the restructuring of Borse Dubai and the deal with Nasdaq, OMX and the LSE is very, very important. What people haven't picked up in the news, which I am surprised about, is that the biggest competitor to the DIFX was the LSE." He explains that for emerging markets, and specifically for Middle Eastern issuers, the LSE has been the exchange of choice. North African companies such as Egyptian Orascom Construction, Telecom Egypt, Lebanese property developer Solidere, and Dubai-based smart phone maker i-mate have all listed in London.These companies did not have the chance to list in Dubai because the trading volumes and liquidity on the DIFX was very slim, and hasn't been improving. "For the last two years the DIFX hasn't been gaining ground and has lost a lot of competition to the LSE. So they said ‘you know what, why not just buy it'", Momdjian observes.

You may be forgiven for missing some of the details of the latest mega-deal, so here is a brief recap. In early August this year, Dubai's government consolidated the Dubai Financial Market (DFM) and the DIFX into a new holding company: Borse Dubai. Two weeks later, the new company launched a US$4bn bid for the Swedish market operator OMX, trumping Nasdaq's bid.

The Swedish regulators and OMX management did not receive Dubai with open arms, and a number of hedge funds and the Qatar Investment Authority (QIA) began to acquire shares in OMX. On September 17, Borse Dubai announced that it would acquire a majority of the Swedish exchange's shares. Three days later, Nasdaq and Borse Dubai agreed on the complex deal - the topic of discussion.

The deal essentially forces Borse to give up its ownership of OMX by transferring its shares to Nasdaq (after the acquisition is completed). In return, Borse will receive 19.9% of Nasdaq and 28% of the LSE (which Nasdaq owned), and Nasdaq will take a strategic stake in the DIFX (which will be rebranded Nasdaq DIFX). An extra twist took place last week following the completion of the US$2.3bn merger between the LSE and Borsa Italiana. The listing of an additional 79,449,753 shares in the London bourse - giving it a market value of US$9.4bn - has diluted the stakes of both Borse Dubai and Qatar Investment Authority (QIA), an LSE spokesperson says.

"The 28% stake held by Borse Dubai has been diluted down to around 20%, and QIA's 20% position has been reduced to 14%," a LSE spokesman told Arabian Business.

Even with reduced percentages, finance professionals in the region see this as a very promising development. "I think this tie between the LSE, Borse Dubai, and Nasdaq will give sufficient confidence to issuers who have concerns about the credibility of the DIFX. This will certainly encourage issuers to use the DFM or the DIFX as a place for listing", says Momdjian.

But even if the majority hope that the deal will be a winner for all, many have voiced concerns. In what may seem like déjà vu, the US government is in early panic mode over Dubai's purchase of strategic assets.

Closer to home, however, some people are not pleased with Sweden's reception of Arab investors and the growing competition for investments among GCC governments and companies.

First, a look at the local issues. A few months ago management consultancy McKinsey produced a report entitled How Gulf companies can build global businesses, which argued that GCC companies and the region's state-run investment funds need to acquire foreign companies and talent in order to compete globally. The report warned that "deep pockets alone will not buy GCC companies a seat at the global economy's head table". In the heat of the takeover battle, an OMX spokesman exemplified this barrier. He said that the OMX chairman considered the Borse bid hostile and coming from a company that did not value its board's opinion. He added that Borse Dubai wouldn't add value to the OMX.

A source close to Borse Dubai and privy to the transaction voices concerns that echo the McKinsey conclusion. The source says that while the deal will probably be a good one for Dubai, the treatment by OMX was distasteful, and feels like "a slap in the face". He says that "the OMX board is more than happy to accept Borse Dubai's superior cash offer but only if Nasdaq is the owner. The accusations about experience and the lack of skilled management are not valid. The DIFX is a new exchange in an emerging market, but nobody doubts management's ability to run the operation."

Acquiring new skills and competing globally is on all decision makers' minds in the GCC, and in order to overcome future "slaps in the face" will take many more years of development. The inter-GCC competition for foreign assets is a very serious problem, yet it has a more direct solution. As Arabian Business went to press, QIA was aggressively amassing stakes in both the OMX and the LSE. And after an agreement was reached between Nasdaq and Borse Dubai, the QIA issued a statement urging OMX shareholders to "take no action", as it finalised plans to submit a bid of its own.

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